Comments, observations and thoughts from two left coast bloggers on applied statistics, higher education and epidemiology. Joseph is a new assistant professor. Mark is a marketing statistician and former math teacher.

Monday, August 27, 2012

Littlefield also argues that judges in New York routinely side with contractors in disputes with the Metropolitan Transportation Authority. “In the private sector, if you rob your customer, you will suffer a hit to your reputation and possible losses in the courts,” he said in an interview. “Not so if you rob an agency like the MTA. Then it’s all rights and no responsibilities.”

The MTA must continue to award contracts to the lowest- price bidder, and without the ability to hold bad contractors accountable, Littlefield said, the agency turns to “writing longer and longer and longer contracts, expressly prohibiting every way it has been ripped off in the past.” The byzantine contracts that come out of this process drive entrants away, limiting competition and pushing up costs.

The inability to reward contracts based on reputation is a huge problem. It means that there is a huge amount of benefit to thinking of a way to rip off the local government and no real consequences to doing so. Market forces don't work because the need to give the award to the lowest bidder, regardless of reputation, makes it impossible to stop doing business with a bad vendor so long as they have the lowest price.

Imagine if you had to buy a hamburger this way. In the real world we know that there is a quality difference between hamburgers as well as a substantial price difference. But if you always had to buy the lowest cost hamburger unless you could rule out a feature of the burger in advance, you can imagine how hard it would be to get the hamburger that you wanted and how easy it would be for the vendor to play games.

It's not a good system and I can see no reason why we should not look to reform it.